Updated: Jun 27
Author: Ilona Milostnaja
Date of Publication: 26/06/2023
Dividends are payments made by organizations to their shareholders, primarily in the form of cash or shares. This is one way to distribute profits among business owners. So, payouts are a factor for investors when choosing stocks.
In fact, this is the part of the profit that remains after taxes, capital replenishment, production costs and bonuses. The amount and procedure for payments is regulated and approved by the participants. As well as the charter of the organization or joint stock company.
How are dividends paid?
As a rule, companies with good financial performance and a stable income stream pay out profit in the form of cash or dividend shares. The frequency and amount depends on:
● conditions and scope of activity;
● market competition;
● financial position.
Some organizations pay dividends consistently, every quarter, while others pay less frequently or not at all. Usually payments are made in cash, but they can also be in the form of additional shares.
Moreover, investing in dividend stocks is an easy way to generate passive income and stable profits. Dividend stocks exist in a variety of industries, including utilities, telecommunications, and consumer products. Thus, investors use them as a way to generate stable income from organizations with strong financial performance.
Benefits of investing
● Passive income and additional profit.
● Potential capital increase.
● Higher returns than non-dividend stocks.
● Low tax rate compared to other forms of profit.
This type of investment has its drawbacks
● Payments fluctuate over time. Accordingly, it is impossible to predict what income the investor will receive.
● The Company may reduce or terminate payments at any time. This will affect the cost of investment.
Tax on dividends
The rate depends on the general tax category, as well as on the taxes of the region. This is income that is subject to federal income tax. However, some types of dividends, such as those paid on dividend stocks, may be taxed at a lower rate than other types of income.
All in all, dividend investing allows individuals to benefit from company success and generate a steady income. To enhance financial goals and secure stability, investors should grasp dividends, conduct research, and diversify portfolios. Yet remember! Before making investment decisions, you need to consult a financial advisor. Also, you should determine the goals and risks for the investor and the company.